PUERTO RICO IN CRISIS — T I M E L I N E —
1933 1823
2017 1948
Puerto Rico’s Economic Crisis Timeline Fifth American President James Monroe. Public domain.
For the second time, Spain grants Puerto Rico autonomy, including the vote for all literate males. Puerto Rico can now establish its own import duties and foreign trade relations.
Public domain
Discussion of the Monroe doctrine by President Monroe. Library of Congress.
The Monroe Doctrine stated that further efforts by European governments to colonize land or interfere with states in the Americas would not be accepted by the U.S.; Spain’s colony in Cuba was exempted.
1815
Puerto Rico’s self-government: Last Spanish officials in Puerto Rico after the Charter Economy of 1897 was established.
1823
1845
Real Cédula de Gracias opened Puerto Rico’s economy to trade, lowered tariffs and duties and stimulated immigration. Its trade with the United States and population increased as a result.
The ten-week Spanish American War led to the Treaty of Paris, the agreement that gave the U.S. control of Cuba and indefinite colonial authority of Puerto Rico, Guam and the Philippines. The treaty transferred sovereignty from Spain to the U.S. That sovereignty is governed by the U.S. Congress.
1897 1898
1900
Supreme Court Members after the implemented Foraker Act, 1900. Library of Congress.
Parade celebrating admission of Oregon to the union, 1859.
Public domain
(Fundación Puertorriqueña de las Humanidades)
The Foraker Act, also known as the Organic Act of 1900, extended all federal laws of the United States to be in effect on the island. The Act also created a “Puerto Rican citizenship,” the nature of which was not defined. • A governor and an executive council appointed by the President. • A House of Representatives with 35 locally elected members. • A non-voting Resident Commissioner in Congress. • A judicial system with a Supreme Court. • U.S. oversight of the National Guard and defense. The Foraker Act Economic Structure: • The application of U.S. maritime and international trade laws, and, • Exemption from federal income taxes, including Section 931 of the U.S. Internal Revenue Code granting tax exemption to possessions’ income.
Belief in Manifest Destiny gave support for U.S. expansion throughout the American continent, and justified the war with Mexico and the splitting of Oregon with the United Kingdom. THE CENTER FOR PUERTO RICAN STUDIES
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The U.S. Supreme Court, in its ruling on Gonzales v. Williams, reaffirmed Puerto Rican citizenship which denied that Puerto Ricans were United States citizens and labeled them as non-citizen US nationals.[5]
Fair Labor Standards Act introduces federal minimum wage, industry committees are established.
Jones Act (1917). William A. Jones, Insular Affairs Committee chairman. (Collection of the US House of Representatives)
The Jones Act amends the Foraker Act to confer U.S. citizenship on Puerto Ricans. • The Jones Act established triple tax exempt bonds: “All bonds issued by the Government of Puerto Rico, or by its authority, shall be exempt from taxation by the Government of the United States… or by any State, Territory, or possession, or by any county, municipality, or other municipal subdivision…”
1904
1909
The Olmsted Act gives the U.S. president a direct role in Puerto Rican affairs. However, a majority of Puerto Ricans demands greater local control.
1917
As part of the New Deal, President Franklin D. Roosevelt creates the Puerto Rican Reconstruction Administration (PRRA), which provides for agricultural development, public works, and electrification of the island.
1921
The Revenue Act exempted from U.S. taxation all corporations that received at least 80% of their income from U.S. possessions, if at least 50% came from active business; income was taxable on repatriation but liquidated distributions were tax free.
1933 1935
The Puerto Rican Emergency Relief Administration is created to operate relief programs after the island was devastated by hurricane “San Ciprián” that killed 257 and over 4,820 persons were injured.
Puerto Rican Emergency Relief Administration (1933) and The Puerto Rican Reconstruction Administration (1935), Infrastructure development after hurricane San Ciprián. Photos by FERA 1934
Revenue Act (1921). Cornell University Library.
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1938
The United States allowed Puerto Ricans to elect their own governor, Luis Munoz Marin (1898-1980).
First Puerto Rican Governor (1946), Jesús T. Piñero. Source: loc.gov
President Harry S. Truman appoints the island’s first Puerto Rican governor, Jesús T. Piñero.
First Puerto Rican Governor Elected by the people (1948), Luis Muñóz Marín. Public domain.
Amendments to Fair Labor Standards Act mandates increases to establish the U.S. minimum wage in Puerto Rico.
1946
1948
1950 1952
1976 1977
Congress adopted Section 903(1) of the Bankruptcy Code and introduced a new definition of “State” that excluded Puerto Rico’s municipalities from municipal bankruptcy. Prior to 1984 Puerto Rico had the option of declaring municipal bankruptcy under the Bankruptcy Code.
1984
Section 936 converts tax exemption to a foreign tax credit that exempts mainland companies from Federal taxes on income earned in Puerto Rico.
The U.S. Congress approved Public Law 600 (P.L. 81-600), which led to Puerto Rico’s own local constitution but left most of the provisions of the Jones Act unchanged. Law 600 was ratified in plebiscite by the voters in Puerto Rico.
Puerto Rico adopted the name of Estado Libre Asociado (literally translated as “Free Associated State”), officially translated into English as Commonwealth.
The Commonwealth of Puerto Rico (Estado Libre Asociado) is adopted (1952). Source: ipsnews.net
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March 9, 2009 Governor Luis Fortuño signed Public Law 7, which declared a State of Fiscal Emergency and established a Comprehensive Fiscal Stabilization Plan.
Puerto Rico’s economy entered into a recession earlier than the U.S., and factors other than the global financial crisis were at play. At least three major structural factors triggered the current economic crisis in Puerto Rico: • The decline in manufacturing jobs induced by the elimination of Section 936 federal tax credits, • The crisis in public finances and the rise of public debt, and • Congressional and presidential neglect to enact effective policies toward the island.
Before and after repeal of Section 936. Source: World Bank Database
1993
1996
President Bill Clinton proposes for the first time to phase out Section 936 of the Internal Revenue Code. A stateside and island coalition of politicians and businesses lobbied to prevent the law from passing. An upcoming nonbinding plebiscite on whether the island should remain a commonwealth or become a state or new nation influenced Congress to extend the tax credits.
2006
Puerto Rico Sales Tax Financing Corporation (COFINA, from Spanish Corporación del Fondo de Interés Apremiante) is created to issues government bonds paid for by Puerto Rico Sales and Use Tax (SUT) of 2.75%, or half of the out of the state government’s portion of 6%).
As part of the Small Business Job Protection Act of 1996, Congress approved a 10-year phase-out of Sec. 936 tax credit; the program ended completely on December 31 2005. A coalition of island-based pro-statehood supporters and conservative members of Congress prevailed in phasing out the tax credit. PR’s economy entered into a steady decline since the sunset of section 936.
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2009
Governor Luis Fortuño signed Public Law 7, which declared a State of Fiscal Emergency and established a Comprehensive Fisc al Stabilization Plan. Thousands of government employees were laid off, causing many protests against these measures.
Source: S&P, Moody’s and Fitch
The Puerto Rico government defaulted for the second time on payments of $35.9 million of non-Commonwealth-guaranteed Puerto Rico Infrastructure Financing Authority debt and $1.4 million of Public Finance Corp. bonds. The money is diverted to pay investors who are owed $328.7 million of interest on general-obligation debt, which has legal priority. Puerto Rico’s debt (1973-2014) Source: “Economía política de Puerto Rico: 1950-2000, para años 1970-200,” and “Junta de planificación para años 2000-2012.”
Puerto Rico’s debt (including those from municipalities, special authorities and public corporations) reaches $72 billion and is estimated that obligations to pension funds may exceed another $40 billion. Puerto Rican bonds are downgraded to non-investment grade (better known as “junk status” or speculative grade) by three bond credit rating agencies.
Enactment of the “Puerto Rico Oversight, Management, and Economic Stability Act’’ or PROMESA (Spanish for “promise”), which set a Financial Oversight and Management Board and granted debt restructuring authority to Puerto Rico. It includes a stay on debt payments. Almost $2 billion in debt payments were due July 1 from various branches of the Puerto Rican government (general obligation bonds guaranteed by the full faith and credit of the Commonwealth government). The prospect of a disorderly default is likely since Puerto Rico does not have the liquidity to make these payments.
2010
2014
Between May and June 2010, Students from the University of Puerto Rico were part of a strike, which closed 10 of 11 campuses of the public system. Students fought against a tuition hike and other measures approved by the Board of Trustees.
Real GNP and Puerto Rico Unemployment rate 1952-2016 Source: Puerto Rico Planning Board
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Puerto Rican Population in Puerto Rico and the United States Source: US Census Bureau, ACS 2000-2015 (1-year estimates) and 2010 Intercensal Estimates
On November 5, different social groups participated of “Unidos por la Salud”, a march that urged U.S. Congress to support equal treatment for Puerto Rico and prevent cuts in programs such as Medicare and Medicaid. Business owners, students, and other sectors protested against the implementation of a Value-Added Tax, which replaced the Sales tax with the purpose of increasing revenues for the government.
On 29 May 2015, Puerto Rican government enacted a new Value-Added Tax of 10.5% to become effective April 1, 2016. Business owners, studnts, and other sectors protested against the implementation of a Value-Added Tax, which would have replaced the Sales tax with the purpose of increasing revenues for the government. The VAT was eliminated before its implementation date of June 1, 2016.
2015
The government of Puerto Rico releases the “Krueger Report.” It calls for structural reforms in government services, pension systems and public finances. For the first time in history the Puerto Rico government defaults on $58 million of principal and interest due on Public Finance Corp. bonds (“moral obligation” bonds). Anne O. Krueger’s Report: “A Way Forward” (2015). Source: newsismybusiness.com
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PROMESA Timeline
The economic and fiscal crisis has led to an ensuing humanitarian crisis in Puerto Rico • 46% live in poverty — the highest poverty rate of any state or territory • At 12.2% in 2015, unemployment rate in Puerto Rico is two times the national average of 5.4% • Median household income in Puerto Rico is $19,518, approximately onethird of the U.S. median • Over $40 billion government obligations to pension funds, already sold assets and depleted reserves
May 18, 2016 H.R. 5276 is introduced in U.S. House of Representatives. This is a second version of the PROMESA act.
2016
April 12, 2016 H.R. 4900 is introduced in U.S. House of Representatives. This is the first version of the PROMESA act, which does not go to vote. Curtisy of Claridad de Puerto Rico
Mixed Reactions to PROMESA in Puerto Rico • Protest camp is established in front of the Federal Court building in San Juan • Majority of the public has “little knowledge of the law,” according to would have polls • Support increased from 46% in poll prior to the enactment of PROMESA to 62% by the end of August, prior to the elections • After elections, Governor Garcia-Padilla submits budget that is rejected by Oversight Board
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June 9, 2016 The House votes to pass the PROMESA act, in a 297 to 127 vote. The bill is passed to the Senate.
June 30, 2016 President Obama signs the PROMESA act, which establishes a Financial Oversight and Management Board and a mechanism to restructure Puerto Rico’s debt.
July 1, 2016 Almost $2 billion in debt payments were due July 1 from various branches of the Puerto Rican government (general obligation bonds guaranteed by the full faith and credit of the Commonwealth government). The prospect of a disorderly default is likely since Puerto Rico does not have the liquidity to make these payments. Source: El Nuevo Dia.com-Aug 18, 2016
August 18, 2016 “Mayor apoyo a la Junta después de aprobada,” Sources: El Nuevo Dia.comAug 18, 2016.
June 29, 2016 The U.S. Senate votes to pass S. 2328 (H.R. 5276), the PROMESA act, with 68 votes in favor and 30 against the bill.
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August 31, 2016 President Obama appoints the seven members of the Oversight Board.
September 30, 2016 The first public meeting of the PROMESA Oversight Board takes place at the Alexander Hamilton U.S. Custom House in New York City. October 14, 2016 Governor Alejandro García Padilla presents his fiscal and economic growth plan to the Oversight Board. This plan presents an estimate of cumulative budget gap of around $59 billion until 2026.
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Puerto Ricans Distrust Their Own Institutions The Confidence Barometer reveals that Puerto Ricans do trust Federal agencies • Trust of Federal Institutions: — FBI 84% — Supreme Court 81% — Oversight Board 79% • Distrust of Puerto Rico Political leaders: — 95% agree Puerto Rico is governed by a few groups that seek their own benefit El Nuevo Dia.com-22 de mayo de 2016
Source: Comisión Estatal de Elecciones Puerto Rico
November 8, 2016 In an unusual election, Governor Candidate Ricardo Rosselló wins the election with only 42% of the votes. This is the lowest percent for a winning candidate in Puerto Rico’s history. Surprisingly, two independent candidates received 17% of the votes. The number of registered voters who did not vote in this election is estimated to be between 877,566 and 1,277,566. This number depends on the number of registered voters that migrated and are not residing in Puerto Rico—representing a participation rate of between 55.45% to 64.43%. This is the lowest recorded voter turnout, possibly due to the effects of disillusionment with the political process.
November 23, 2016
November 18, 2016 The third Public Meeting of the Oversight Board is held at El Conquistador, Puerto Rico. The board holds a public hearing where different representatives of different groups and organizations are present.
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The Oversight Board sends a letter to Governor Alejandro Garcia Padilla stating that more policy adjustment and debt sustainability analyses need to be made. At the same time, it asks the governor to present a revised fiscal plan by December 15, 2016.
November 29, 2016 In response to the letter about the fiscal plan, Governor Alejandro Garcia Padilla, asks for Federal Action to extent Affordable Care Act funds and Medicaid parity for Puerto Rico. Also, he warns the Oversight Board not to consider austerity measures that can affect the people of Puerto Rico.
Curtisy of Claridad de Puerto Rico
January 18, 2017 The Oversight Board sends a letter to Governor Ricardo Rosselló recommending deep cuts to the government right-sizing, reduction on health care spending and higher education, and a pension reform in order to meet a balance budget by fiscal year 2019. On January 21, Governor Rosselló rejects most of the Oversight Board recommendations.
December 20, 2016 The Oversight Board changes the estimate of the cumulative budget gap to $67.5 billion.
December 20, 2016 The Congressional Task Force on Economic Growth released its final report about policy options for the economic growth of Puerto Rico.
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Se aprueba la cuestionada reforma laboral y denuncian recorte de derechos (2017) Source: nodal.am
March 13, 2017 January 25, 2017 Governor Ricardo Rosselló signed Public Law 4, known as Labor Transformation and Flexibility Act, which looks to reduce benefits to workers in the private sector.
Fifth public meeting of the Oversight Board. The Oversight Board approves the Governor’s Fiscal Plan, which includes more taxes and cutbacks.
February 28, 2017
January 28, 2017
Governor Rosselló presents his fiscal plan to the Oversight Board.
The fourth public meeting of the Oversight Board is held at El Conquistador, Puerto Rico. The Oversight Board presents targets, objectives, and fiscal guidelines for the fiscal plan to be submitted by the Commonwealth government, and selects Ramon Ruiz Comas as interim executive director.
Source: Fiscal Plan for Puerto Rico submitted by Governor Ricardo Rossello Nevares, and approved by the Oversight Board.
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Curtisy of Claridad de Puerto Rico
May 5, 2017 March 23, 2017 The Oversight Board appoints Natalie Jaresko, former minister of finance of Ukraine, as executive director.
U.S. Chief Justice John Roberts appointed a federal judge based in Manhattan to oversee Puerto Rico’s landmark bankruptcy case. In a brief statement, Roberts said he had designated U.S. District Judge Laura Taylor Swain of the Southern District of New York to oversee what could be the biggest municipal debt reorganization in U.S. history. Puerto Rico has $70 billion in debt.
Curtisy of Claridad de Puerto Rico
May 1, 2017
May 3, 2017
The end of the stay on bondholders’ litigations. After this bondholders can take the government of Puerto Rico to a federal court for its payments. At the same time, the government can use Title III of the PROMESA act, which authorizes the government of Puerto Rico to take negotiations to the federal court.
In an unprecedented move, the Fiscal Oversight Board requests for bankruptcy-like protection under Title III of the PROMESA Act. The petition was made in Puerto Rico’s federal district court after members of the FOB determined that this was the best option to solve Puerto Rico’s debt crisis. According to law, this request needed the approval of at least 5 members of the FOB. Nevertheless, the decision was approved by all members of the FOB.
May 1, 2017 Unions, political leaders, and students’ organizations participated in a march against austerity measures recommended by the Fiscal Oversight Board, and in favor of an audit of Puerto Rico’s public debt. Groups from the diaspora supported the cause by doing the same in New York.
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Center for Puerto Rican Studies Hunter College, CUNY 695 Park Avenue New York, NY 212-772-5688, centropr.hunter.cuny.edu